Alabama sees strongest tax growth since Great Recession

Alabama experienced its strongest growth in tax revenues last fiscal year than at any time since the Great Recession a decade ago, Acting State Finance Director Kelly Butler said today.

Tax dollars that support the Education Trust Fund, the main source of state funding for schools and colleges, grew by $428 million, 6.8 percent, over 2017. Revenues were $6.75 billion in fiscal year 2018, which ended Sept. 30. The biggest taxes supporting the ETF are income tax and sales tax.

The General Fund, which is supported by a different set of taxes and tends to grow much slower than the ETF, grew by $76 million, 4 percent, to $2 billion.

For both funds, the growth exceeded projections, Butler said.

“I think the big picture is that it’s just generally a good economy and more people working and more people making more money,” Butler said.

Income taxes, the biggest source of school funding, grew by more than $300 over the previous year.

Butler said the numbers rose more quickly after January, after Congress passed the tax cut package.

“I’m not saying it’s all because of that but that was a time period that we noticed the growth accelerate," Butler said.

“I think it’s definitely the best growth we’ve seen since the ’08 Great Recession.”

For much of the last decade, lawmakers have had to rely on borrowing or one-time funding sources to prop up the General Fund. But the General Fund finished the 2018 year with a balance of $172 million, far above a projected balance of $95 million.

Butler said the growth in General Fund taxes was broad-based, and included about a 7 percent increase in insurance premium taxes, a tax that he said generally follows the trend of the economy because as more people earn paychecks, more buy insurance.

Revenues from liquor sales by the ABC Board increased, as did taxes on internet sales collected by Amazon and other vendors, called the Simplified Sellers Use Tax. An increase by the Federal Reserve on short-term interest rates helped the General Fund because it boosted interest collected on short-term deposits by the state treasury, Butler said.

The longtime chairman of the House Ways and Means General Fund Committee, Rep. Steve Clouse, R-Ozark, said the numbers were good news but that persistent challenges remain in funding large state programs such as Medicaid and prisons.

“It’s good. Obviously, you certainly want to be higher than lower. But we’ve got so many things going forward,” Clouse said.

One challenge is the Children’s Health Insurance Program, Clouse said. Congress reauthorized CHIP for 10 years earlier this year, Clouse said, but the state will have to kick in a significant share of the cost, starting with about $23 million in 2020 and $60 million in 2021.

“That’s certainly an issue,” Clouse said. “Medicaid is always an issue. We’ve been able to control costs here the last couple of years, but that will be an issue going forward.”

Lawmakers begin their regular session in March and will work on budgets for fiscal year 2020.